Which of the following is NOT a solution to an adverse selection problem due to seller's having private information?
A)The government can provide information or weed out low-quality goods.
B)Buyers can produce the good for themselves.
C)Sellers can signal quality.
D)Third-party verifiers can provide information to buyers.

Question

Quizplus · Accepted Answer

Buyers producing the good for themselves is not a solution to adverse selection as it does not address the issue of asymmetric information between sellers and buyers. Adverse selection occurs when sellers have private information that is not known to buyers, and this could lead to buyers getting low-quality goods despite paying a high price. The other options listed (government intervention, signaling, third-party verification) all aim to provide buyers with more information about the quality of the goods being sold, thereby reducing the scope for adverse selection.

Which of the Following Is NOT a Solution to an Adverse